In the name of God the compassionate the merciful
The 2024 BRICS Summit was held in Kazan, Russia, from October 22 to 24. One of the significant developments at the summit was the unveiling of the bloc’s new currency. The introduction of a BRICS currency backed 40% by gold and 60% by local currency.
This could impact the concept of the asset-based and the gold Dinar in several ways, potentially offering both competition and support for Islamic finance initiatives. Here’s a look at how this new currency could interact with the aspirations around the gold dinar:
1. Increased Demand for Gold-Backed Currencies: Since the BRICS currency includes a 40% gold backing, it may increase global interest in gold-backed currencies, thereby creating a favourable environment for the gold dinar concept. Islamic finance proponents of the gold dinar, who seek a currency directly linked to tangible assets like gold, may see the BRICS initiative as supportive of their goal for stable, asset-backed monetary systems.
2. Providing a Bridge Currency: The BRICS currency could serve as a bridge between the conventional financial system and an Islamic gold-backed currency like the dinar. If the BRICS currency gains acceptance in international trade, it might encourage further development and use of gold-backed options, including the gold dinar, as it aligns with Sharia principles on wealth preservation and stability.
3. Stability and Diversification: For Muslim-majority nations that would like to avoid relying solely on the U.S. dollar or euro for trade and reserves, the BRICS currency offers an alternative that is at least partially backed by gold. This may serve as an acceptable middle ground, offering stability through gold without requiring a full commitment to the dinar, which can be harder to scale across different regions and markets.
4. Reduced Need for the Gold Dinar as a Global Reserve Currency: Since one purpose of the gold dinar was to serve as a stable, universal currency for Muslim-majority countries, the BRICS currency could partially fulfil this role, particularly if the BRICS initiative grows in influence. This might reduce the urgency for widespread adoption of the gold dinar among Muslim countries, as they may rely on the BRICS currency for international trade and reserve diversification.
5. Boost to Gold Demand and Validation for Islamic Finance: A BRICS currency that includes gold backing would likely increase global demand for gold, which may validate the underlying principles of the gold dinar. Islamic finance institutions, which may prefer gold or other asset-backed reserves, might benefit from this development, as it could boost the value of their gold holdings and support the philosophy behind the gold dinar.
6. Complementary Use in Islamic Financial Systems: The gold dinar could find a niche within domestic and regional markets, while the BRICS currency could serve international trade and reserves. This complementary approach could allow the gold dinar to develop locally while benefiting from the broader acceptance of the BRICS currency for global transactions.
In a nutshell, the BRICS gold-backed currency could bolster the case for asset-backed currencies in Islamic finance, indirectly supporting the gold dinar’s philosophy. However, partially fulfilling the stability and asset-backing objectives, it might reduce the need for a full transition to the gold dinar as a universal currency in the short term. And Allah knows best! “Praise be to Allah in whose favour good deeds are accomplished” (ibn Majah 3803)
The writer is the Ghana representative of the Alhuda Centre of Islamic Banking and Economics, Dubai, and Islamic Banking and Finance patron and advocate in Ghana. He holds a BSc. in Islamic banking, economics, and finance from the International Open University a BA. in Political Science from the University of Ghana, and a Diploma in Education from the University of Winneba. We would want to collaborate and partner with any persons or organizations who are willing to explore this field in Ghana and beyond.
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